MORGANABLE BUSINESS / TRADE & INVESTMENT
Crypto vaults have attracted more than $10 billion in deposits as investors seek returns from their digital assets, drawing fresh attention from regulators in the United States and Europe.
Akure —
Crypto vaults have attracted more than $10 billion in deposits as investors seek returns from their digital assets, drawing fresh attention from regulators in the United States and Europe.
That is up from about $4 billion at the start of 2025, according to Blockworks data cited by the Financial Times. The growth has raised concerns about lending risks, automated liquidations, software flaws and depositor protection.
These products operate within decentralised finance, commonly known as DeFi. They allow users to deposit crypto assets into blockchain-based strategies that lend or stake tokens to generate returns.
Unlike a traditional bank account, a vault generally relies on smart contracts and preset rules rather than a bank acting as an intermediary. The arrangement offers access and transparent records, but does not remove investment risk.
A vault typically has a curator who selects its strategy, sets risk limits and may collect fees. That role can resemble the work of a fund manager, especially when a curator chooses which assets a vault accepts or adjusts its lending approach.
Borrowers pay to use the tokens. Target yields often range from 3 to 10 per cent, although riskier strategies advertise more than 20 per cent.
Those figures can attract investors holding stablecoins, which aim to maintain a steady value against an asset such as the US dollar. Fintech companies, digital asset treasury firms and hedge funds may seek extra income from stablecoin balances.
However, a high advertised yield does not guarantee profit. Investors can lose money if collateral falls, borrowers default or a platform fails.
REGULATORS EXAMINE THE SECTOR
US and European authorities are now examining whether some vaults and the businesses that manage them need closer oversight. In July, the SEC said it was reviewing whether vaults and lending strategies fall under securities laws.
Commissioner Hester Peirce said moving an activity onto a blockchain does not automatically exempt it from regulation. The legal position depends on the product’s structure and activities.
In September, the European Securities and Markets Authority proposed regulatory expectations for intermediaries that facilitate access to decentralised finance services.
Those rules could affect firms that help customers reach vaults or carry out transactions involving them.
The proposals do not classify every vault as a regulated investment product, but show that authorities are testing whether current rules address the market.
The central question is how much control a curator or service provider exercises. A vault that simply follows fixed code may raise different legal questions from one in which a person actively chooses investments, changes lending parameters or directs asset movements.
Regulators may examine whether those activities resemble investment management or involve products covered by securities laws. Clearer rules could inform users but raise operators’ compliance costs.
LIQUIDITY AND AUTOMATED SELL-OFFS
Vaults can also expose depositors to liquidity problems. Many use automatic liquidation mechanisms to sell collateral when a borrower’s position falls below a required threshold.
These rules can limit losses, but sharp price falls may trigger multiple liquidations, adding selling pressure. Losses can spread quickly across connected protocols.
This risk matters because decentralised finance services can interact with one another. A vault may accept a token as collateral even when that token depends on another protocol or a complex pool of assets.
If the underlying asset loses value or becomes difficult to trade, the vault may struggle to recover the amount it lent. Investors must assess the collateral, liquidity and lending rules, not just the advertised yield.
Depositors also face uncertainty about withdrawal delays if a vault’s assets cannot be sold quickly, even when the platform appears to offer easy access to funds.
Software weaknesses pose another threat. Smart contracts execute instructions automatically, but coding errors or unexpected market events can cause them to behave in harmful ways.
Hackers may exploit vulnerabilities to steal assets, while faulty price feeds can prevent a protocol from recognising that collateral has fallen in value. TRM Labs estimated that $972 million was stolen from DeFi platforms in the first half of 2026.
The consequences can be serious for investors who assume that blockchain transparency makes a product safe. Code may be public, yet users may lack the expertise to assess it. Some strategies involve illiquid tokens or private-credit assets that are difficult to sell during market stress.
LESSONS FROM PAST CRYPTO FAILURES
The expansion has revived memories of the 2022 collapses of crypto lenders such as Voyager Digital, Celsius and Genesis. Those businesses faced severe pressure from risky lending, market declines and customer withdrawals.
Decentralised vaults use different structures, but analysts warn that investors can still underestimate how quickly liquidity can disappear.
The comparison does not make another collapse inevitable, but underlines the need to assess risk controls.
Investors should review a vault’s strategy, fees, collateral standards, withdrawal terms and record of security incidents before depositing funds.
They should check whether curators can change strategies and whether vaults rely on other protocols. Diversification may reduce concentration risk but cannot prevent technical failures or market-wide sell-offs. Yields are never guaranteed.
The growth of crypto vaults also reflects a broader shift in digital finance. As firms experiment with tokenised securities and blockchain-based lending, supporters argue that vaults can make digital assets more useful and help investors put idle holdings to work. Trust will depend on clear disclosures, strong security and honest explanations of risk.
Regulators must protect users while recognising differences between automated software and active management.
Industry operators must show that higher returns come with transparent controls. With deposits above $10 billion, scrutiny is likely to intensify.
The sector’s future depends partly on whether growth and investor protection can advance together.
